The Fed’s Rate Cut

By SBE Council at 7 November, 2024, 8:01 pm

by Raymond J. Keating -

As widely expected, the Federal Reserve announced on Thursday (November 7) that it decided to cut the target range for the federal funds rate by 0.25 percentage points to 4.5 percent to 4.75 percent.

The Fed served up a positive take on the state of the economy, asserting that economic activity "continued to expand at a solid pace," "labor market conditions have generally eased," and progress has been made on the inflation front though it remains "somewhat elevated."

Source: Federal Reserve Bank of St. Louis, FRED

An easing off on the Fed's interest rate hikes is welcome (see above chart), as such rate manipulation does little to solve inflation issues and usually makes matters worse.

At the same time, further reining in the monetary base (currency in circulation plus bank reserves) - the part of the money supply over which the Fed has direct control - is needed (see the following chart), and at least the Fed is moving in the right direction of late, but far too timidly. Indeed, the loose money experienced over the past 16-plus years persists.

Source: Federal Reserve Bank of St. Louis, FRED

Also, it is vital to keep in mind that as problematic as Fed monetary policy has been since 2008, one clear way to make matters worse would be for politicians to have direct input into monetary policy decisions. President-elect Donald J. Trump has suggested such intervention. But that is highly unlikely, as it would require a dramatic change in the law. If Congress attempted to tread down that path it would create major uncertainties and disruptions in the economy and financial markets, resulting in greater inflation threats and diminished investment in the U.S. economy. That is an outcome that obviously works against pledges to restore stability and robust growth in the U.S. economy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His latest books on the economy are The Weekly Economist: 52 Quick Reads to Help You Think Like an Economist , The Weekly Economist II: 52 More Quick Reads to Help You Think Like an Economist and The Weekly Economist III: Another 52 Quick Reads to Help You Think Like an Economist .

Public link

Please use the above public link if you want to share this noodl on another website.